Share with your friends










Submit

Analytics Magazine

Inside Story: Mothers of Invention

March/April 2010

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE

If necessity is the mother of invention, then deregulation is the father, and revenue management is the couple’s golden child, at least as far as the airline industry is concerned.

The Airline Deregulation Act of 1978 spawned a host of low-fare carriers that could make money while selling seats at a fraction of the price charged by established airlines. That gave the upstarts a huge advantage.

The big carriers, locked into hefty labor and legacy costs, had no clear way of leveling the playing field. Their sheer size became a liability. All major airlines faced a troubling question: How can we compete? If we lower fares across the board, it doesn’t matter if we have a 100-percent load factor — we’ll still lose money. And if we don’t match the upstart airlines’ fares, we’ll lose market share, and eventually we’ll be out of business.

American Airlines solved the dilemma by offering different fare classes in each market. American matched the low-fare airlines’ prices with a portion of its seat inventory on certain routes and saved another portion for late-arriving, high-yielding demand (typically business travelers).

Thus was born the concept of revenue management, but several questions remained: How many seats do you sell at a discount and how many do you hold in reserve? When and by how much do you change the price of each bucket of inventory? Again, analysts and their tools of the trade — forecasting, optimization, etc. — came up with the answers.

Virtually every airline in the world adopted some sort of RM system, and the concept inevitably spread to many other industries (hotel, cruise, etc.) where you find perishable, limited capacity. Alas, RM couldn’t solve every corporation’s problems. Many airlines still went out of business, crushed by some combination of high legacy costs, soaring fuel prices, post-9/11 paranoia, the recession and good, old-fashioned corporate mismanagement.

Today, the purveyors and managers of RM systems face a whole new threat: the Internet and the tech-savvy customers it spawns as outlined in our cover story.

— Peter Horner, Editor
horner@lionhrtpub.com

CLICK HERE TO GO TO THE DIGITAL VERSION OF THIS ARTICLE



Headlines

Former INFORMS President Cook named to U.S. Census committee

Tom Cook, a former president of INFORMS, a founding partner of Decision Analytics International and a member of the National Academy of Engineering, was recently named one of five new members of the U.S. Census Bureau’s Census Scientific Advisory Committee (CSAC). The committee meets twice a year to address policy, research and technical issues relating to a full range of Census Bureau programs and activities, including census tests, policies and operations. The CSAC will meet for its fall 2018 meeting at Census Bureau headquarters in Suitland, Md., Sept. 13-14. Read more →

Gartner identifies six barriers to becoming a digital business

As organizations continue to embrace digital transformation, they are finding that digital business is not as simple as buying the latest technology – it requires significant changes to culture and systems. A recent Gartner, Inc. survey found that only a small number of organizations have been able to successfully scale their digital initiatives beyond the experimentation and piloting stages. “The reality is that digital business demands different skills, working practices, organizational models and even cultures,” says Marcus Blosch, research vice president at Gartner. Read more →

Innovation and speculation drive stock market bubble activity

A group of data scientists conducted an in-depth analysis of major innovations and stock market bubbles from 1825 through 2000 and came away with novel takeaways of their own as they found some very distinctive patterns in the occurrence of bubbles over 175 years. The study authors detected bubbles in approximately 73 percent of the innovations they studied, revealing the close relationship between innovation and stock market bubbles. Read more →

UPCOMING ANALYTICS EVENTS

INFORMS-SPONSORED EVENTS

INFORMS Annual Meeting
Nov. 4-7, 2018, Phoenix

Winter Simulation Conference
Dec. 9-12, 2018, Gothenburg, Sweden

OTHER EVENTS

Applied AI & Machine Learning | Comprehensive
Sept. 10-13, 17-20 and 24-25


Advancing the Analytics-Driven Organization
Sept. 17-20, 12-5 p.m. LIVE Online


The Analytics Clinic: Ensemble Models: Worth the Gains?
Sept. 20, 11 a.m.-12:30 p.m.


Predictive Analytics: Failure to Launch Webinar
Oct. 3, 11 a.m.


Advancing the Analytics-Driven Organization
Oct. 1-4, 12 p.m.-5 p.m.


Applied AI & Machine Learning | Comprehensive
Oct. 15-19, Washington, D.C.


Making Data Science Pay
Oct. 29 -30, 12 p.m.-5 p.m.


CAP® EXAM SCHEDULE

CAP® Exam computer-based testing sites are available in 700 locations worldwide. Take the exam close to home and on your schedule:


 
For more information, go to 
https://www.certifiedanalytics.org.